Riverview Financial Corporation Reports Second Quarter Earnings For 2019

HARRISBURG, Pa., July 26, 2019 /PRNewswire/ -- Riverview Financial Corporation (the "Company" or "Riverview") (NASDAQ: RIVE), today reported unaudited financial results at and for the three months and six ended June 30, 2019.  Riverview reported net income of $1.4 million, or $0.16 per basic and diluted weighted average common share, for the second quarter of 2019, compared to net income of $2.8 million, or $0.31 per basic and diluted weighted average common share, for the second quarter of 2018.

For the six months ended June 30, 2019, Riverview reported net income of $747 thousand, or $0.08 per basic and diluted weighted average common share, compared to net income of $5.6 million, or $0.62 per basic and diluted weighted average common share, for the same period last year. The year over year reduction was largely a function of recognizing $1.2 million less of net accretion on acquired assets and assumed liabilities and a $2.2 million nonrecurring executive separation charge in 2019. In addition, the results for the first six months ended June 30, 2019, included $456 thousand of severance expense to employees that either retired or were separated from service due to branch network consolidations. Comparatively, Riverview incurred merger related costs of $461 thousand for the first half of 2018.

In addition to evaluating its results of operations in accordance with accounting principles generally accepted in the United States of America ("GAAP"), Riverview routinely supplements its evaluation with an analysis of certain non-GAAP financial measures, such as tangible book value per share and return on average tangible stockholders' equity. Riverview believes these non-GAAP financial measures provide information useful to investors in understanding its operating performance and trends. Where non-GAAP disclosures are used in this press release, a reconciliation to the comparable GAAP measures is provided in the accompanying tables. The non-GAAP financial measures Riverview uses may differ from the non-GAAP financial measures other financial institutions use to measure their results of operations.

HIGHLIGHTS

• Book value per share and tangible book value per share increased to $12.62 per share, or 3.9% and $9.58 per share, or 6.6%, respectively, at the end of the second quarter of 2019, compared to the same period last year.
• Tax-equivalent net interest margin was 4.20% in the second quarter of 2019 compared to 3.94% for the same period last year. Tax-equivalent net interest margin, excluding the impact of purchase accounting, improved to 3.76% in the second quarter of 2019 compared to 3.62% for the same period last year.
• Continued strength in asset quality as nonperforming assets as a percentage of loans, net, and other real estate owned was 0.56% at the end of the second quarter of 2019, an improvement from 0.81% at December 31, 2018 and 0.89% at June 30, 2018.

"Riverview Financial Corporation is at an inflection point in its evolution from a $250 million institution covering two counties eight years ago to the $1.1 billion institution we are today, which will be covering fourteen counties in the near future, while adding Trust, Wealth Management, and Treasury Management services along the way.  Growth to gain required scale was a priority over the past eight years.  While reasonable and profitable growth remains an important component of our strategic plan, we have transitioned rapidly to focus intently on operational efficiencies and the consistent achievement of higher levels of core operating performance.  Historically we maintained staffing levels, processes and operating systems that made the aforementioned growth possible over the past eight years.  However, today we find ourselves capable of growing our balance sheet utilizing more efficient processes, implementation of strategic outsourced financial technology partnerships, utilization of more sophisticated technological resources internally, and a more streamlined employee base," said Brett D. Fulk, President and Chief Executive Officer.  

Fulk went on to say, "We continued the development and implementation of certain initiatives necessary to improve operating efficiencies, grow interest income and enhance noninterest income in order to establish a consistent core earnings run rate acceptable for an organization of our size and scale during the first half of this year.  One such initiative was a retail branch performance and resource allocation analysis, resulting in the closure of two underperforming offices with successful transition of customers to nearby offices during the first quarter of 2019 and the pending closure of two additional branch offices and the sale of a third to a local financial institution in the second half of 2019, pending regulatory approvals. This particular initiative has resulted in a 17% reduction of full service offices when compared to year end 2018 without a material negative impact to Riverview's deposit, loan, or customer base.  Additional efficiency initiatives include, but are certainly not limited to a reduction in the size of our Board of Directors from sixteen (16) to thirteen (13) members following several previously announced departures for various reasons, and a bank-wide reduction in staff effort, which is anticipated to have a materially positive impact to our ongoing core performance despite the resulting one-time severance related expenses taken as a result of these efforts during the second quarter."

"In concert with divestiture of existing offices, in order to improve operating efficiencies and redefine our market footprint, Riverview continues to seek new opportunities to reposition itself within growth markets.  To this end, Riverview is pleased to announce that it has received regulatory approval to open full-service offices in two very attractive markets, Camp Hill, Cumberland County and Allentown, Lehigh County, PA. We believe the opportunity to enter these new growth markets, both contiguous to existing Riverview markets, with offices staffed by experienced bankers that are well known and established in those markets, is an exciting prospect for our franchise. We have had significant success historically with de-novo branch expansion efforts in growth markets by attracting outstanding employees within those markets, and I expect these new offices and markets will continue our trend of past organic expansion success," continued Fulk. "With respect to interest income, we anticipate loan growth opportunities through the addition of several experienced commercial relationship managers resulting from ongoing market disruption, chiefly among our largest competitors.  Lastly, we have identified or developed several new products and services that will be introduced throughout the second half of 2019, each with demonstrated ability to either enhance revenue or decrease expenses."

"In closing, management recognizes the need to address efficiencies through the identification and elimination of inefficiencies within our existing infrastructure, processes and procedures, to maintain consistent expense discipline, while continuing to grow our balance sheet and revenue in a measured, profitable manner.  There is no higher priority in our Company at the present time than positioning Riverview Financial Corporation to capitalize on our increased size and scale for the purpose of enhancing long term shareholder value through demonstration of improving efficiencies and consistent earnings results, while continuing to maintain pricing and underwriting discipline and ongoing focus on asset quality. As we focus on enhancing shareholder value, we will continue to adequately reserve for the risks in our loan portfolio. Given the late state of the economic cycle we currently find ourselves in, we believe the need to maintain strong reserves in our allowance for loan losses is paramount. Therefore, we will not sacrifice our asset quality standards nor our need to adequately allocate reserves to our allowance for loan losses in future periods. The Riverview Financial Corporation Board of Directors and Management team is excited about our ability to build upon a solid franchise foundation through execution of our strategic initiatives, many of which are outlined herein," concluded Fulk.

INCOME STATEMENT REVIEW

Tax-equivalent net interest income for the three and six months ended June 30 were $10.8 million and $20.6 million in 2019 compared to $10.4 million and $21.9 million in 2018.  The decrease in tax-equivalent net interest income was attributable to declines in loan balances and reductions in net accretion on purchased assets and assumed liabilities, offset by an improvement in the tax equivalent net interest margin. For the three months ended June 30, the tax-equivalent net interest margin increased to 4.20% in 2019 from 3.94% in 2018. The loan portfolio yield on a tax-equivalent basis improved to 5.41% in the second quarter of 2019 compared to 4.95% for the same period last year. The cost of funds increased 18 basis points comparing the second quarters of 2019 and 2018.

For the six months ended June 30, the tax-equivalent net interest margin was 4.03% in 2019 compared to 4.16% in 2018. The tax-equivalent net interest margin excluding purchase accounting adjustments would have been 3.71% and 3.62% for the six months ended June 30, 2019 and 2018. The tax-equivalent yield on earnings assets was 4.90% and the cost of funds was 1.07% in 2019. The tax-equivalent yield on the loan portfolio increased to 5.22% in 2019 compared to 5.16% in 2018. The tax-equivalent yield on the loan portfolio would have been 4.88% and 4.60% for the first six months of 2019 and 2018, excluding loan accretion of $1.5 million and $2.6 million included in loan interest income related to acquired loans. For the six months ended June 30, investments yielded 3.10% on a tax-equivalent basis in 2019 compared to 2.78% for the same period last year. The cost of deposits increased 25 basis points to 1.01% in 2019 from 0.76% in 2018. The cost of interest bearing liabilities increased to 1.07% in 2019 from 0.84% in 2018. Loans, net averaged $887.4 million in 2019 and $939.6 million in 2018. Average investments totaled $105.2 million in 2019 and $92.3 million in 2018. Average interest-bearing liabilities decreased to $839.2 million in 2019 from $881.7 million in 2018.

For the quarter ended June 30, the provision for loan losses was $618 thousand in 2019 compared to no provision for the same period in 2018.  The provision for loan losses totaled $1,201 thousand for the six months ended June 30, 2019, compared to $390 thousand in 2018. The increase in the provision for loan losses in 2019 was influenced by increasing qualitative factors related to economic trends.

For the quarter ended June 30, noninterest income totaled $2,126 thousand in 2019, a decrease of $407 thousand from $2,533 thousand in 2018. The decrease in noninterest income for the quarter was due primarily to decreases in services charges, fees and commissions of $336 thousand, and mortgage banking income of $89 thousand.  For the six months ended June 30, noninterest income decreased to $3,937 thousand in 2019 compared to $4,486 thousand in 2018. Service charges, fees and commissions declined $511 thousand due to reduced fees on loan swap arrangements, while mortgage banking income declined $153 thousand due to lower volumes of originations in saleable loans. 

Noninterest expense increased $1,076 thousand to $10,484 thousand for the three months ended June 30, 2019, from $9,408 thousand for the same period last year.  The increase in noninterest expense for the quarter was due primarily to increases in salaries and employee benefits expense of $609 thousand and other expenses of $555 thousand.  The increase in salary and benefits expense was primarily due to accruals of $456 thousand in contractual payments due to retirement and severances associated with staff elimination and the planned branch closures. For the six months ended June 30, noninterest expense increased to $22,448 thousand in 2019 compared to $18,944 thousand in 2018. The increase was primarily due to $2.2 million in nonrecurring expenses from the execution of an executive separation agreement and $456 thousand of retirement and severance accruals.

BALANCE SHEET REVIEW

Total assets, loans, net, and deposits totaled $1.1 billion, $889.3 million, and $979.7 million, respectively, at June 30, 2019. For the three months ended June 30, 2019, total assets and deposits decreased $18.5 million and $21.3 million, respectively, while loans, net increased $11.2 million. Year to date, loans, net, decreased $3.9 million comparing the end of the second quarter of 2019 to year end 2018. Business lending, including commercial and commercial real estate loans, decreased $2.1 million while retail lending, including residential mortgages and consumer loans, decreased $11.2 million during the six months ended June 30, 2019. For this same period construction lending increased $9.4 million.  Loan originations during the first six months of 2019 represented a more moderate pace as compared to the same period of 2018.  The reduction in loan growth was a result of management's decision to focus on improving margins on loan originations and maintaining strong underwriting standards.  Total investments were $100.3 million at June 30, 2019, compared to $104.7 million at December 31, 2018. Total deposits decreased $24.9 million in the six months of 2019 as management sought to maintain margins and was able to reduce reliance on higher cost deposits. Noninterest-bearing deposits decreased $2.2 million, while interest-bearing deposits decreased $22.7 million. As a percentage of total deposits, noninterest-bearing deposits amounted to 16.4% at June 30, 2019 and 16.2% at December 31, 2018.

Stockholders' equity totaled $115.7 million, or $12.62 per share, at June 30, 2019, $113.5 million, or $12.40 per share, at March 30, 2019, and $113.9 million, or $12.49 per common share, at December 31, 2018. The increase in equity in the six months ended June 30, 2019 was due primarily to an increase of $2.4 million in accumulated other comprehensive income and net income of $747 thousand offset partially by dividends declared of $1.8 million. Tangible stockholders' equity per common share increased to $9.58 at June 30, 2019, compared to $9.33 at March 30, 2019 and $9.39 at December 31, 2018.  Dividends declared for the second quarter of 2019 amounted to $0.10 per share representing a dividend payout ratio of 64.0%.

ASSET QUALITY REVIEW

Nonperforming assets were $5.0 million, or 0.56% of loans, net, and foreclosed assets at June 30, 2019 compared to $7.2 million or 0.81% at December 31, 2018. Adjusting for accruing restructured loans, nonperforming assets were $2.3 million, or 0.26% of loans, net and foreclosed assets at June 30, 2019, and $4.3 million, or 0.48%, at December 31, 2018. The allowance for loan losses equaled $7.0 million, or 0.79%, of loans, net, at June 30, 2019, compared to $6.3 million, or 0.71%, at December 31, 2018.  Adding accounting marks for purchased credit impaired loans to the allowance for loan losses would result in a ratio of 1.06% as a percentage of loans, net at June 30, 2019. The coverage ratio, allowance for loan losses as a percentage of nonperforming assets, was 139.5% at June 30, 2019 versus 88.1% at December 31, 2018. Excluding accruing restructured loans, the coverage ratio would be 304.0% at June 30, 2019. Loans charged-off, net of recoveries, for the six months ended June 30, 2019, equaled $547 thousand, compared to $295 thousand for the same period last year. 

Riverview Financial Corporation is the parent company of Riverview Bank. An independent community bank, Riverview Bank serves the Pennsylvania market areas of Berks, Blair, Centre, Clearfield, Cumberland, Dauphin, Huntingdon, Lebanon, Lehigh, Lycoming, Northumberland, Perry, Schuylkill and Somerset Counties through 30 community banking offices and three limited purpose offices. Each office, interdependent with the community, offers a comprehensive array of financial products and services to individuals, businesses, not-for-profit organizations and government entities. The Wealth Management and Trust divisions of Riverview Bank, with assets under management exceeding $350 million, provide trust and investment advisory services to the general public, businesses and not-for-profit organizations. Riverview's business philosophy includes offering direct access to senior management and other officers and providing friendly, informed and courteous service, local and timely decision making, flexible and reasonable operating procedures and consistently applied credit policies. The Company's common stock trades on the Nasdaq Global Market under the symbol "RIVE". The Investor Relations site can be accessed at https://www.riverviewbankpa.com/.

Safe Harbor Forward-Looking Statements:

We make statements in this press release, and we may from time to time make other statements regarding our outlook or expectations for future financial or operating results and/or other matters regarding or affecting Riverview Financial Corporation, Riverview Bank, and its subsidiaries (collectively, "Riverview") that may be considered "forward-looking statements" as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements may be identified by the use of such words as "believe," "expect," "anticipate," "should," "planned," "estimated," "intend" and "potential." For these statements, Riverview claims the protection of the statutory safe harbors for forward-looking statements.

Riverview cautions you that a number of important factors could cause actual results to differ materially from those currently anticipated in any forward-looking statement. Such factors include, but are not limited to: prevailing economic and political conditions, particularly in our market area; credit risk associated with our lending activities; changes in interest rates, loan demand, real estate values and competition; changes in accounting principles, policies, and guidelines; changes in any applicable law, rule, regulation or practice with respect to tax or legal issues; and other economic, competitive, governmental, regulatory and technological factors affecting Riverview' operations, pricing, products and services and other factors that may be described in Riverview' Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q as filed with the Securities and Exchange Commission from time to time.

In addition to these risks, acquisitions and business combinations present risks other than those presented by the nature of the business acquired. Acquisitions and business combinations may be substantially more expensive to complete than originally anticipated, and the anticipated benefits may be significantly harder-or take longer-to achieve than expected. As regulated financial institutions, our pursuit of attractive acquisition and business combination opportunities could be negatively impacted by regulatory delays or other regulatory issues. Regulatory and/or legal issues related to the pre­acquisition operations of an acquired or combined business may cause reputational harm to Riverview following the acquisition or combination, and integration of the acquired or combined business with ours may result in additional future costs arising as a result of those issues. 

The forward-looking statements are made as of the date of this release, and, except as may be required by applicable law or regulation, Riverview assumes no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those projected in the forward-looking statements.

In addition to evaluating its results of operations in accordance with accounting principles generally accepted in the United States of America ("GAAP"), Riverview routinely presents and supplements its evaluation with an analysis of certain non-GAAP financial measures, such as tangible stockholders' equity and Core net income ratios. The reported results for the three and six months ended June 30, 2019 and 2018, contain items which Riverview considers non-Core, namely net gains on sales of investment securities available-for-sale, acquisition related expenses and the adjustment to tax expense due to the enactment of the Tax Act. Riverview presents the non-GAAP financial measures because it believes that these measures provide useful and comparative information to assess trends in Riverview's results of operation.  Presentation of these non-GAAP financial measures is consistent with how Riverview evaluates its performance internally and these non-GAAP financial measures are frequently used by securities analysts, investors and other interested parties in evaluation of companies in Riverview's industry. Where non-GAAP measures are used in this press release, reconciliations to the comparable GAAP measures are provided in the accompanying tables. The non-GAAP financial measures Riverview uses may differ from similarly titled non-GAAP financial measures of other financial institutions.  These non-GAAP financial measures would not be considered a substitute for GAAP basis measures, and Riverview strongly encourages a review of its condensed consolidated financial statements in their entirety.  Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are presented in the tabular material that follows.

[TABULAR MATERIAL FOLLOWS]

SOURCE Riverview Financial Corporation